How do I negotiate a retail commercial lease?

Negotiating a retail commercial lease can be tricky. Generally the landlord will want to ensure he or she gets the best deal possible. If you’re competing with other potential tenants for the lease it can be difficult to get a good deal. Nevertheless, it’s important to try and negotiate. Here are LegalVision’s tips for making sure your lease doesn’t turn ugly.

Remember this is a commercial lease, it’s designed to protect and even advance your commercial interests.

While landlords will almost always be the one to draft a copy of the lease, it doesn’t mean you have to agree to all of the terms proposed. Remember that you don’t have to lease a property through that landlord if there are better options on the market.

Don’t take the first offer

Signing a retail lease isn’t a straight forward task. It’s a negotiation. In many cases, the initial lease will be heavily weighted in favour of the landlord. Read it, evaluate it and then suggest amendments to the lease if you aren’t happy with any of the clauses.

Spread your wings

Keep your options open – negotiate more than one commercial lease at a time and then pick the best one. Consult with a leasing lawyer to see which lease agreement represents the better deal in terms of protecting your legal interests.

The Rent

Most leases will have built-in clauses which allow for an annual increases in rent. In negotiating a lease you need to be aware of:

Market rent rates in the area

Market rent rates for businesses with similar uses

Will any deprecation limits impact on rent rates?

Will the rent be varied and by how much?

What will be the long-term cost of the rent variations?

The rent increases in retail leases are generally by a (1) fixed amount, (2) fixed with CPI increases or (3) turnover rent, which is based on a percentage of your revenue.

Options

Options clauses might sound all good, but they usually come with conditions and prerequisites – so read these carefully. In particular, you need to make sure any options clauses give you a full right to renew the lease.

Costs

Commercial leases usually contain clauses related to costs. You should look at these clauses to see who is responsible for the costs. If you are, check to see if they are fair and reasonable. Remember, once you have signed a commercial lease there is no going back. A clause that frequently causes trouble for tenants is costs associated with assignment of a lease – make sure these costs are reasonable. Ask the landlord to provide evidence of such costs. If possible, agree on a limit in advance so you know the amount that needs to be paid.

Termination and Exit Clauses

Almost all leases will give the landlord a right to terminate if the tenant breaches the lease. However, these clauses must include obligations for the landlord to first issue a notice bringing the breach to your attention and to enable you to remedy the breach. In most circumstances, you should ask for a 14-day ‘notice and remedy’ time in the event of a breach occurring.

See a leasing lawyer for legal advice

Leases can be over 75 pages long, some clauses are written in hard to understand language and may have a detrimental impact on your business.

A bad lease can cost you thousands, result in early closure or relocation or cause you to get stuck in long, unnecessary and expensive disputes.

Hiring a leasing lawyer can save you in the long-run and help negotiate a lease which will better protect your interests.

Lachlan is the CEO of LegalVision, an innovative and tech-driven law firm. LegalVision is disrupting Australia's legal industry and transforming the way in which Australian businesses access legal services. He previously worked as a corporate lawyer and investment banker in London, Paris, Amsterdam and Hong Kong. Lachlan specialises in banking and finance, capital raising and startups.

If you would like further information on any of the topics mentioned in this article, please get in touch using the form on this page.

First Name*

Last Name*

Email Address*

Phone Number*

Message*

By submitting this form you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.